Don Sull's blog

The rise of emerging market champions is good news, in contrast, for the entrepreneurs and executives who lead firms in developing countries, who draw inspiration from the success of firms like Mittal or AmBev. Inspiration alone is not enough. Executives and owners of emerging market firms must also understand how they can take their firm from a good local player to a globally-competitive firm.  My next few posts will introduce a framework, based on this research, describing the steps that firms such as Mittal, CEMEX, Infosys, and others followed in their rise to global leadership. I will use the case of Samsung to illustrate the framework.

From metal hut to global powerhouse

South Korea in the mid-1980s was a developing country with a per-capita gross domestic product one-sixth that of the United States. The Samsung Group, while large by Korean standards, was small in global terms. Nor was Samsung a significant player in the global electronics industry. Only a few years earlier, Samsung had entered the consumer electronics industry when it produced its first microwave oven in a corrugated metal hut. When switched on, the first prototype microwave melted, and required extensive rework before Samsung could secure a small order as a sub-contractor to a Panamanian customer.

Today, Samsung is a global leader in more than fifty electronic product categories, was number two in terms of US patents granted in 2008, with a brand among the twenty most valuable in the world (ahead of Apple, Pepsi, and Nike) in 2009.  How did Samsung go from a local player melting microwaves in a metal hut to a global powerhouse in consumer electronics? The group did so, by following three steps required to make the leap from good to global. I describe each of these steps below, illustrate them briefly with the Samsung case.

Commit to a global mindset

When Samsung’s founder died in 1987, he was replaced by his third-born son, Lee Kun Hee (hereafter Lee) as chairman of the Samsung Group. The 45-year-old Lee had studied business in Japan and the United States, and worked his way up Samsung’s organization. His time abroad led Lee to view Samsung from a global perspective. Four months after succeeding his father, Lee declared Samsung’s “Second Foundation” during the celebrations surrounding the 50th anniversary since the group’s founding. Lee committed to competing only in businesses where the company could be globally competitive, and to divesting those businesses where it could not compete on a global scale.

To instil a global mindset, Lee later convened a meeting of 23 senior executives of Samsung Electronics in Los Angeles. Before the meeting began, Lee took the managers to visit local electronics retailers. The executives were dismayed to find their products often stacked in corners gathering dust, while market leaders like Sony enjoyed prominent position and commanded a price premium. Dismayed by the gap between their self-image and how global consumers perceived their products, the Samsung executives quickly concluded that the only way to global leadership was to improve product technology and brand to the standards set by Sony.

In the next seven months, Lee arranged similar meetings for 1,800 Samsung executives in Japan, Europe and the U.S. so they too could see Samsung as others saw them. The visits to foreign electronics retailers helped jolt Samsung executives out of their parochial mindset, and instill a more global perspective throughout the ranks. Lee publicly pledged to transform Samsung one of the top five electronic firms in the world.

Give your commitment teeth

Committing to a global mindset is necessary, but not sufficient. To move from good to global, senior executives must be willing to make bold decisions that force prevent their company from sliding back into the comfort of home market competition. Lee took a number of actions that gave teeth to his commitment to a global mindset. Lee announced that Samsung would merge or divest 14 affiliate companies that could not compete globally.

Lee reconfigured the composition of the senior management team, shifting nine of Samsung’s senior-most executives from operational responsibility to advisory positions. He promoted more than one hundred junior managers based on their commitment to global leadership.  Taken together these bold actions signaled to the organization that Lee meant business and returning to business as usual was not an option.

Align the organization

To make good on his commitment, Lee had to realign every aspect of the Samsung organization. In terms of strategic frames, Lee insisted that managers benchmark their division’s performance not against other South Korean companies like Daewoo and Hyundai, but rather against the world’s best performers in a Sony. The metrics used to evaluate Samsung managers were shifted from measures of unit volumes and sales growth, to measures of innovation (e.g., percentage of revenues from new products, patents) and product quality (e.g., defect rates, product recall rates).

Lee made large and sustained investments in resources, particularly to build Samsung’s brand and technology base, and focused these investments on the businesses that could compete globally. Between 1993 and 1999, Samsung increased advertising spending five-fold, and investments in R&D three-fold. Samsung funded much of this increased spending with the proceeds from asset disposals.

Manufacturing processes were improved through quality programs, including a “line stop program” in which any employee could stop the entire production line when they discovered a product defect, and the line could not be restarted until the source of the defect was identified and eliminated. The new product development process was shifted from copying existing products to designing cutting edge products.

Lee also shifted the company’s relationships, relying less on government support for funding and more on global equity and debt markets. The internal relationships among the affiliate companies were also changed, to give them greater autonomy from the Chairman’s office so they could respond more quickly and effectively to changes in their competitive domains. Finally, hiring and promotion policies were to promote executives aligned with Samsung’s new values, rather than the historical process of promotion based purely on seniority.